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In a year that saw banks take up a larger chunk of the commercial real estate lending pool, local and regional banks were among the top commercial real estate lenders in Connecticut.
While out-of-town institutions made up the top four commercial real estate purchase lenders in Connecticut in terms of volume, they were followed by local institutions Liberty Bank with Thomaston Savings Bank and Union Savings Bank filling out the top 10.
“We’re kind of consistently out there in the market, seeing a lot of demand for our product,” said Christopher Arnold, senior vice president, department head commercial real estate lending at Liberty Bank. “So from our perspective, our appetite is consistent.”
Liberty saw its commercial real estate purchase lending increase greatly from 2023 to 2024. It’s loan volume increased by 253 percent from $7.49 million to $26.51 million last year.
By total number of loans made in Connecticut in 2024, the top three were comprised of local or regional institutions. Thomaston Savings Bank came in first with Webster Bank and Liberty Bank just behind.
The local commercial real estate industry continues to deal with high construction costs, high interest rates and challenging local permitting processes. But according to national commercial brokerage CBRE, banks are making up a larger chunk of the CRE funding pool.
These Are Connecticut’s Top Lenders. See Who Came Out on Top
Banks were the biggest non-agency lenders at the end of last year, accounting for 43 percent of fourth-quarter loan closings nationally, followed by life insurance companies (33 percent) and alternative lenders (23 percent). The increase is up from 18 percent in the prior quarter and 40 percent year-over-year.
Locally, banks made $8.3 billion in commercial real estate purchase loans of all types in Connecticut in 2024 according to The Warren Group, publisher of The Commercial Record. Credit unions made $91.4 million in commercial real estate loans.
Meanwhile mortgage companies and other non-bank lenders like insurance companies made commercial loans amounting to $1.4 billion in Connecticut in 2024.
The state’s commercial real estate market is in need of lenders the “middle market,” Arnold said: deals between $10 million and $80 million. And that’s given Liberty Bank an opening.
“What I’ve seen is the deal side between $10 million to $80 million, somewhere in that middle market, CRE has been a void of lenders,” he said. “We’ve been able to really benefit from that void and we have the ability to do larger deals, given our capital within our asset size, and we can really work with some really good sponsors and recognize really good loan products, because there’s been kind of a lack of competition in that space.”
Image by Sam Minton | Commercial Record Staff
Shaun Dwyer, PeoplesBank’s senior vice president commercial banking, believes that banks are a preferred lender for CRE due to the relationships they create.
“I think banks tend to have lenders that have been in the market for a very long period of time,” he said. “They get comfortable doing multiple deals with their lender. Not sure how the mix is on other platforms, whether it’s insurance companies or other CMBS lenders that don’t have that relationship but relationship banking is important, especially in this environment. so they tend to gravitate toward those lenders and those banks that they’re most comfortable with, and they have a strong track record with.”
Will This Continue in 2025?
Looking ahead to 2025, banks are expected to continue to build out their CRE loan books, bringing more liquidity to the market along with increased competition.
“On a macro basis, I expect to see more liquidity in the market this year for commercial real estate deals,” Arnold said. “I think there was lenders on the sidelines with concentrations in CRE that they were worried about for variety of reasons. I think this year we’ve already started seeing more competition for deals.”
While there will be demand and increased liquidity, Arnold said he expects for there to be some challenges such as the increasingly challenging requirements for debt service coverage. He also indicated that the key for increased deals will be the trend of interest rates.
“There was some expectation that rates may drift down in 2025 which would probably be a positive factor for more real estate deals getting done in general, because right now, with rates higher, a lot of deals become debt constraint from where they need to be. If rates do trend down, I think deals will increase, because deals will work better but from Liberty’s perspective, we will consistently, as we have in the past, be there in the market and doing pretty well.”
Dwyer agreed that 2025 could be a challenging year in regards to CRE.
“We look at 2025 as a challenging year,” he said. “Our target is really modest growth. Looking at all the changes in the environment, the unknown, the uncertainty from Washington. How does that relate to our borrowers and their appetite for new loans in this environment. The interest rate environment continues to be a challenging one so the expectations on our side is to grow, but at a modest pace.”
